Sept. 1 (Bloomberg) -- AT&T Inc. Chairman and Chief
Executive Officer Randall Stephenson is facing the toughest
regulatory challenge of his career as U.S. officials put his $39
billion gamble on T-Mobile USA Inc. in jeopardy.

Stephenson, 51, agreed to a deal that will pay T-Mobile a
package of $7 billion, including $3 billion in cash plus
wireless airwaves and call discounts, if regulators reject the
acquisition. Dallas-based AT&T expressed surprise yesterday that
the U.S. Justice Department moved to block the deal.

While AT&T seeks an expedited hearing in court to force the
Justice Department to make its case against the merger, the
carrier will also propose remedies that would make the takeover
more suitable to the agency, a person familiar with AT&T’s
strategy said. There was no internal debate within the company
on whether to fight for the deal, said the person, who declined
to be identified because the plans are private.

The acquisition is the largest under Stephenson’s tenure,
which began in 2007, when predecessor Ed Whitacre retired after
17 years as CEO. The deal would combine the industry’s second-and fourth-biggest carriers, catapulting AT&T ahead of No. 1
Verizon Wireless.

“He went and did a deal with a very large breakup fee,”
said Christopher King, an analyst at Stifel Nicolaus & Co. in
Baltimore. “To come out of it with observers knowing they
weren’t even close to getting it approved, that is a black eye
for AT&T management.”

Justice Lawsuit

The Justice Department sued yesterday to block the
takeover, saying the deal would “substantially lessen
competition” in the wireless market.

“We intend to vigorously contest this matter in court,”
AT&T said in a statement. “We have met repeatedly with the
Department of Justice and there was no indication from the DOJ
that this action was being contemplated.”

Stephenson has argued that the acquisition will benefit
consumers by enabling more high-speed Internet services and
producing more jobs to expand the company’s network.

“They clearly took a gamble here, so it would be a black
mark on him for sure,” Steve Clement, an analyst at Pacific
Crest Securities Inc. in Portland, Oregon, said of Stephenson.
“It makes things more challenging for them to be able to
compete in a cost-effective way.”

’Door Is Open’

AT&T may still be able to close the merger, either by
defeating the Justice Department in court or by negotiating with
regulators.

“Our door is open” if AT&T wants to address the agency’s
concerns about the deal, Sharis Pozen, acting chief of the
Justice Department’s antitrust division, told reporters at a
news conference.

The Justice Department has assured AT&T that its public
comments about its willingness to discuss remedies were genuine,
the person familiar with the matter said.

The struggle to complete the T-Mobile acquisition shouldn’t
overshadow AT&T’s strong performance under Stephenson’s tenure,
said Todd Rosenbluth, an equity analyst at Standard & Poor’s in
New York. He praised AT&T’s ability to retain customers even
after losing its exclusive relationship with Apple Inc. this
year to sell the iPhone, the world’s best-selling smartphone.

“They grew revenue and did quite well despite the economic
uncertainty,” Rosenbluth said in a phone interview. “This
would be a negative that could be added to the mix of
positives.” He advises buying AT&T shares.

Largest Deal

Stephenson’s largest deal as CEO before his T-Mobile bid
was the 2007 acquisition of Dobson Communications Corp. for
about $4.5 billion, including the assumption of debt, according
to Bloomberg data. As a chief financial officer and chief
operating officer under Whitacre, he had helped usher through at
least four deals for more than $10 billion, helping build one of
the old Ma Bell’s offspring, Southwestern Bell Telephone Co.,
into a new telecommunications giant.

Stephenson was born in Oklahoma City and began his career
at Southwestern Bell in 1982. He started in the technology
department and served a stint in Mexico City overseeing
investments in the country. That included the company’s stake in
Telefonos de Mexico SAB, the phone carrier controlled by
billionaire Carlos Slim, whom Stephenson counts as a friend.

Stephenson, who earned a master’s degree in accounting,
relies more on research and analysis than the gut instinct
favored by Whitacre, his deputies have said.

’Great for AT&T’

“I am trying to do something good for the company and I
think this is great for AT&T,” Stephenson said of the
acquisition in a March interview. He wasn’t available to comment
for this story, said Larry Solomon, a spokesman for the phone
carrier.

A failure to complete the deal would leave Stephenson
having to pursue smaller acquisitions to gain airwaves needed
for high-speed wireless Internet service, Clement of Pacific
Crest Securities said. AT&T would also need to push the
government to auction more airwaves so the company could build
capacity through those sales, he said.

“That’s where it will hurt them,” Clement said. “They
were buying these specific assets to add capacity cheaply.”

Stephenson wasn’t alone in estimating the odds for the T-Mobile purchase winning approval were good. King of Stifel
Nicolaus, who advises buying AT&T shares, said he had thought
before yesterday’s move by the Justice Department that AT&T had
at least a 60 percent chance of completing the deal.

“Everyone can see the rationale behind it,” he said.
“It’s not a pie-in-the-sky, left-field acquisition they made,
but it appears at this point they badly misjudged the political
calculations surrounding the deal. A lot of us did.”